SLC Agricola SA
BOVESPA:SLCE3
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SLC Agricola SA
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Good morning, everyone, and welcome to the Earnings Conference Call on the Fourth Quarter 2022 SLC Agricola. My name is Rodrigo Gelain. I am Financial Manager and IR manager. Together with me, we have our CEO, Mr. Aurelio Pavinato; and our CFO and IRO, Ivo Brum.
It is an honor to be here with you this morning. We would like to inform you that this video conference is being recorded, and it will be available on the company's IR website, where you can also find the presentation. [Operator Instructions]
We would like to let you know that information contained in this presentation and any statements that may be made relative to the business outlook, projections and operating and financial targets of SLC Agricola are based on the beliefs and assumptions of the company's management as well as on information that is currently available. Considerations about the future are not a guarantee of performance because they involve risks, uncertainties and assumptions as they refer to future events and as such, they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions and other operating factors may affect SLC's future performance and lead to results that materially differ from such considerations about the future.
With this, I turn the floor over to our CEO, Mr. Pavinato, so that we can begin the presentation. You may proceed.
Good morning to all. Thank you all for joining us on the video conference call to report SLC Agricola's Q4 2022 results.
Please let's go to Slide 4 for some words on the cotton market scenario. The year 2022 was marked by significant volatility important quotes in the international market. We can mention as notable events, the mobility restriction policies in China, the uncertainty around a global economic recession and crop losses in United States and other important producing countries. According to USDA data for '22, '23, the expectation of global cotton consumption amounts to 110.9 million bales as against a production of 115.4 million bales. In cotton, an important point will be the first planting intentions report for the U.S. Crop 2023 -- 2024, which should be released on March 31 and that could indicate the price trend for coming months.
Now let's go to Slide 5 to talk about soybean. Soybean in the CBOT spot contracts showed an upward trajectory throughout 2022, rising 13% versus 2021. The previous crop season '21, '22, was marked by losses due to the draft associated with the La Nina event in the southern states of Brazil and Argentina. The '22, '23 crop is also experiencing losses in production potential due to the third consecutive La Nina in South America, impacting mainly Argentina and Southern Brazil.
Production in Argentina in the 2022, '23 crop year initially announced at 51 million tonnes was recently revised down to 33 million tonnes according to USDA. Probably, the 2022, '23 season, considering the latest production figures estimated by the USDA shows that the balance between supply and demand tends to show a surplus, but also considering the production figures for Argentina of only 27 million tons of soybean, the global balance should be negative in approximately 2 million tonnes. And this should continue to support current soybean prices.
Going to Slide 6, let's turn to corn. Corn prices in CBOT spot contracts increased 15% in 2022. The corn crops in '22, '23 in Southern Argentina and Brazil suffered from low humidity. In addition, the world is still dealing with the uncertainty related to the conflict between Russia and Ukraine. And Ukraine is a major world producer. In this scenario, there is high unpredictability regarding the exports in top producing countries, which could result in high price volatility. Currently, production is approximately lower -- It's lower than consumption of approximately 9 million tonnes. And therefore, corn prices should remain at current levels.
So now I give the floor over to my colleague, Ivo Brum, who will discuss our financial performance. Ivo.
Thank you very much, Pavinato. Good morning.
Can we please go to Slide 8 where we bring you some highlights from our P&L statement. So in the year-to-date period, we are presenting in combined form, the sum of SLC Agricola data through January and the information that was disclosed for [indiscernible] growth from January to June 2022. So thanks to the combination of business that we saw in 2021. When we look at the entire year due to better prices invoiced in our crops, our net revenue reached the mark of BRL 7.4 billion, growth of 48.6% versus 2021.
And we reached in 2022 the mark of BRL 1.3 billion in net income, a new record for the company. Net income grew 25.3% with a net margin of 18.1%. A new record in adjusted EBITDA was obtained this year above BRL 3 billion, a 62% increase versus 2021. The adjusted EBITDA margin was even better than 2021, hitting 41.3%. This significant increase in adjusted EBITDA was a reflection of the improvement in margins.
Let's go to Slide 9 to talk about the company's debt. The company's adjusted net debt ended 2022 at BRL 2.3 billion, showing a decrease of BRL 55.1 million compared to 2021. The net debt to adjusted EBITDA ratios went from 1.42x at the end of 2021, 0.77x at the end of 2022 as a consequence of the increase in adjusted EBITDA in the period.
Now on Slide 10, we will take a look at cash generation. In 2022, we had strong cash generation in the last quarter of the year. Free cash generation was positive in 4Q '22 and [ BRL 786 ] million. In the calendar year, we reached a record of almost BRL 1 billion in free cash flow generation. This is the result of the right growth strategy added to operating and financial efficiency.
Now in Slide 11, we talk about the management's proposal regarding the distribution of dividends. The management proposal, which aims to distribute to dividends corresponding to 50% of the parent company's net income or BRL 602 million will be presented to the shareholders meeting. Of this amount we have already distributed BRL 71 million as interest on equity paid on January 2023. Now our share back -- share buyback program in July 2020, we concluded the repurchase of 2 million shares. Shortly thereafter, we approved the new share buyback program to acquire another 4 million shares. This program is now being completed. And in the next meeting, we will also present a bonus of 10% in shares.
And now let's move on to Slide 13 in which we focus on some financial indicators that also show our financial evolution. The NAV updated in the 31 December reached BRL 854 million, very significant in the comparison. Return on equity in 2022 and ROIC of 28.6%. Free cash flow yield was 10% in 2022 and dividend yield of 6.3% in 2022 considering the price of the share at the end of the year. And all of these indicators show the efficiency in our efforts to add value to our shareholders.
Now I will hand it over back to Pavinato, who has more information to share with you.
Thank you very much. Now we can turn to Slide 14, in which we talk about recent land acquisitions. On February 23, 2023, we disclosed via material fact the allocation of 468,000 hectares of land in the State of Bahia. Municipalities sound [indiscernible] the amount of the transaction was BRL 437 million. BRL 55 million for improvements and the amount was per hectare -- the value per hectare planted was -- and we have 3 pre-installments to be paid and in the end of 2025.
We can now go to Slide 16 and as we look for sustainable practices, we strengthened our connection with future generations. And with this, we have joined the index ICO2B3 and IGPTWB3. This demonstrates our efforts in becoming a benchmark in the agricultural industry regarding ESG. And also in May '22, we joined the theoretical asset portfolio of IBOVE, the main indicator at B3. This was the first time that our shares took part of the index since we were listed in June 2017.
In Slide 17, we see some information on ESG. In 2022, we installed the statutory audit committee, which strengthens our governance in improving internal controls and risk management. Besides that, we also certified the ESG system in 2 more farms in 2022. The integrated management system of the company standardize our policies of ESG and count on several certification ISO and ENBR in 13 units taking into account our headquarters and 12 farms. Besides ISO 9001 in 7 farms. We also increased the number of independent board members with the inclusion of Adrianna Waltrick.
And now on Slide 18, we will talk about the seed business for the first time in our calls. And also, we will talk about our sales estimate. The cost of production is mostly made up of the cost of grain and market price and other costs such as processing and transport, sales expenses, which represent 37% of net revenue are basically composed by royalty expenses that are transferred to the sales price. In 2022, the seed business added value to the company's core business delivering an EBITDA of BRL 100.2 million with an EBITDA margin of 22.5% and net income of BRL 57.4 million and a net margin of 12.9%. This is an additional result that was added to our traditional grain production.
And now on Slide 19, we indicate our sales estimate for 2023 for soybean seeds, third-party sales or domestic consumption, we estimate 1,120,000 bags. And for cotton seeds, we estimate sales for third parties or domestic consumption of 121,500 bags.
We can now move on to Slide 20, where Ivo would like to share with you that the SLC seeds brand will host an event called seeds for tomorrow. It will take place on March 22 at Paiaguás Farm with the inauguration of the new seed processing plant in partnership with Kothe Logistica in the state of Mato Grosso, another important step that is achieved through the execution of our strategy. This fully refrigerated project will add to the production capacity over 1 million bags of soybeans in coming years, establishing SLC seeds as an important player in one of the main soybean producing states of the country.
Now in Slide 22, we will talk about the current harvest status and estimates for the next up to 28 March, we have already harvested most of the -- well, the soybean cycle increased in 10 days because of climate conditions. Cotton is 100% planted. And second, crop cotton is now planted 89% and should conclude in a few days, our estimate is to deliver the project in terms of productivity since we have an outlook for rain at the end of April.
Now in Slide 24, we talk about the inputs for the next harvest for the '23, '24 crop that will start being planted in September 2023. We have already started to purchase the fertilizers. We have set 60% (sic) [68%] of demand for phosphate, 50% of potassium chloride and 41% of nitrogen, both with price decreases in relation to the '22, '23 crop. We have already purchased 50% of the total glyphosate needs for '23, '24 at a good price level versus the '22, '23 crop.
Thank you very much. And with this, we will open for the Q&A. Gelain?
[Operator Instructions] Our first question is from Gabriel Barra, Citi.
Can you hear me?
Yes, we can, Gabriel.
I have just 2 questions, in fact. So I'll just focus on these 2. So the results were great. Congratulations. Very strong performance. And my first question, when we look at the prices set for the new harvest and in comparison with last year, we see that the prices were set at levels below when we look at input purchase is not so different from what we saw last year. So this is my question. What can we expect? Why did you make this decision? Are you expecting higher prices as you said in relation to ESG and also CONAB was just released a little more sluggish than USDA in relation to commodity prices, is that the reason why you were not as hedged? Are you expecting commodity prices to rebound. This is the first point I would like to address with you.
And secondly, we saw -- and please correct me if I'm wrong, but I think that the speech in relation to capital allocation changed a little bit. We have been talking about fruit planting a little more conservative -- a little more conservatism in terms of land acquisition. And even though the area has not expanded at the same time via leases and to maintain the healthy mix that you have been talking about to the market, I would like to hear a little more about capital allocation, what we can expect. The seed business has been growing significantly to almost doubled capacity based on the numbers and it's a very relevant business. So what to expect from now on in relation to CapEx? Are you going to invest in land acquisition, in seeds? Or are you going to distribute the earnings to the shareholders via dividends with a very robust dividend distribution.
Thank you very much, Gabriel, for your question. I'll start answering about hedging. When you look at the comparison with previous years and the price is set, well, we are slightly behind, but it's not something that's against our policies. We have a policy that defines the minimum levels and the maximum levels per quarter and also in relation to the purchase of inputs. I think that in 2018 and 2017, we were also a little behind. So why we didn't fix '23, '24 yet. We have almost nothing fixed yet because yes, there is an expectation that prices will increase.
Today, the price for soybean is $12 per bushel. And for May 17, there is a very significant difference, and we see that the scenario or the outlook in Argentina is deteriorating. So there is a large gap between current prices and future prices. So we believe that the gap will probably shorten. And when you look at cotton for December 2024, it's BRL 0.79. So considering corn and soybean price as well in the United States should also increase the area for soybean and corn and reduce the cotton area. So we're still waiting for the intentions to plant, and this will materialize the price trend. There's no reason why prices should fall because there is several pillars sustaining the current prices. But we respect the current hedging policy that we adopt and KPMG this year, revised the application of our policy and submitted the results to the board, we are in full alignment, and we expect prices to improve. And after that, we will start fixing more quickly.
Okay, Gabriel, I'll answer the second question about capital allocation. Our strategy is still going strong in that area. We are looking for business opportunities that will drive great results. We were able to deliver return on equity and on investments to our investors at a very attractive level. Our return on equity in the last 5 years was around 28%. And our strategy this year was 30%, and we'll continue along the same lines. Capital allocation in the last year, well, we allocated in the share buyback program because we envisioned that this would create value, almost 200 million -- along -- 2 million in 2022 and land acquisition in Parsondu Farm by is also very important. It's part of our strategy to have 1/3 of owned land in our portfolio.
So in the case of [Parson's] Farm, we acquired this land where we have the warehouses and the headquarters, and this is how we'll control the entire farm. And following the same market logic, we seek opportunities. So it doesn't make much sense to buy land at a premium. And in this case, we had a very attractive price. So we also want to allocate our capital in land acquisitions. So that's why we'll continue leasing more land, and we believe that the current scenario is favorable for that. So in summary, payment of dividends, while we pay a very expressive amount and our dividend yield is at around 6.3% in the past year. So the return is very attractive. New projects, diversification we are keeping an open mind.
We are looking at fruit projects. We couldn't find the right project yet because it doesn't make sense to go into a new project or business if the project will not generate returns for our shareholders at the levels that we can generate in the other business lines. So we keep an open mind. We are looking out for innovations, but at the same time, we are seizing the existing opportunities in our current business because the world needs more corn, more soybean not as much with cotton. We invest just to keep our productivity level. So we are keeping, however, an open mind for other opportunities. This is how we view our business in a strategy of generating at least 20% of return on invested capital or return on equity updated by Deloitte in the next two years.
Our next question is from Ahiki Bostalin, BTG Pactual.
Well, first of all, I would like to talk a little more about the seed business that you -- well, you disclosed a contribution of BRL 100 million in EBITDA in 2022. There is 1 million bags more that will be added through the Mato Grosso project. So my question is, how big is your ambition in this segment? How much more can you grow in this business, whether soybean seed or cotton seed or other types of seed, and is there an operating model that will follow pretty much what you have been doing, which is to outsource the industrial part and you run the fields.
Now a question about growth in leases in lease land, where we see a change in profitability level for the crops, especially in the double crop. So do you see any changes in relation to the last agreements, 17 to 18 bags per hectare, is the price going to be maintained globally? Or do you think that the new level of profitability will lead to changes to reflect the new profitability of the business.
Ahiki, the seed business today is very synergistic in relation to our production. We have a unit in Bahia that is now outsourced. We have one [Midas] and now the new unit, the most modern South America in Mato Grosso do Sul. With this project, we've reached 2 million bags of soybean seeds. So how big a large seed producer should be around this level, 2 million, 3 million to -- so the question about our ambition is, well, we want to be on one of the biggest and one of the best in soybean productions -- soybean seed production.
So this is our target. We will ensure our growth in this project to Mato Grosso, and there is more space for new projects. And together with soybean, we have cotton, cotton is easier to produce than the seeds, and we have several fields that we can select and the process of processing is more centralized. It doesn't -- we don't have many currency production units in Brazil, just 3. This makes it easier for us to take the seeds to all farms. And the size of the cotton market is much smaller. So we plan 7 million hectares of cotton and 43 million hectares of soybean.
So as you can see, the potential for soybean is much higher than cotton. And following this logic, and considering the synergies between SLC Agricola and SLC seeds, we envision that when -- we can be one of the largest in the market and add value through our seed production. Now about the leases. Well, historically, leases is something that takes up part of the cash of producers. So as productivity increases, leases also increase. There is a limit because it's also something that depends on the commodity cycle. In the case of Mato Grosso and of Brazil, in which we have double crops. And in the Midwest of Brazil, we have this possibility.
And also in the South, in fact, we also plant 2 crops a year. So leases will probably increase until we reach a level that makes the business sustainable for the operator. This is our vision. And those increases, they follow cycles. We are now enjoying a commodity high price cycle. And at the same time, in Brazil, we have the benefits that the leases are established based on soybean bags. So if the prices go down, there should be price adjustments based also on demand and supply in the world. So the adjustments -- price adjustments are reflected in the -- in BRL. So adjustments only take place when there is a major crisis in the industry. So this is the perspective for leases, adhering to this logic that the market is self-regulated.
And along time, the return for the owner of the land is adequate and the more mature the market, the lower the return, the lower the interest, the lower and the -- the return for operators is also adequate, which is our position. So that's why we have been investing in this strategy considering that there's also appreciation of the land that increases the value of the assets tremendously, and we have invested capital that is much lower in the assets and our return on invested capital is also better even if we have to pay higher leases in the near future.
The next question from Pedro Fonsaca, XT.
Congratulations on the results. I don't want to be repetitive, but going back to what Rodrigo said about the Seed business, can you share with us, please, a little more about your sales structure? And how much of third-party seed goes to ag resellers or -- and what is the strategy of your sales channel? And going back to Bahia's question, how does the seed business interact in terms of capital allocation? Are you thinking of inorganic growth? And is -- do you envision a consolidation of the seed business? And finally, how do you view the land acquisition dynamic.
You made a very good acquisition. So what do you expect in relation to the balance sheet? Is it in line with the market? And are there any other land acquisition opportunities that could interest you.
Thank you, Pedro, for the questions. In relation to the sales channel for seeds, 1/3 was used in internal consumption, and 1/3 in verticalization partners who buy the seeds and sell them to the end producers, the producers and 1/3 were direct sales to producers. Now as the business grows, we will see an increase in direct sales to producers and also the sales channel as well could be used to make sales to resellers who will then sell to the farmers. So those are the 2 major channels for growth, of course, the internal channel is used to drive our own protection.
We have practically allocated no capital in seed production. All of the units are third parties. We didn't allocate any capital. So that's why the return on this business has been very interesting. Obviously, we don't dismiss the option of investing capital in this business in the medium term. So we are now covered for a period of 3 to 4 years through these units. And after that, we can think of other projects. I think it's wise to project that we will not -- we will continue not making investments depending on how profitability growth, it's something that we will think about whether it's good to invest in this business. Now land acquisition, land in Brazil shows price volatility in relation to the investor market and the operators who will plant on this land.
So we have been saying to our shareholders that we do not discard the option of investing in land and also now and in the near future, considering, of course, projects that make sense. Well, sometimes you have to think whether it's best to just lease 2 or 3 areas or just buying. And land prices went up expressively in recent years. And now corn and soybean prices are now being revised downwards. For example, now we're not at 180 anymore, but rather at 150. So it's only natural that the price of land will also accommodate, based on the commodity price fluctuations. So this is what we believe we are thinking of investing capital.
But if the project makes sense for the company and if it will add value to shareholders, while mitigating risks because owning land today is something that also is part of our risk mitigation strategy, if you think only on return on equity, we wouldn't own any land, maybe we would be fully asset-light, but having a land bank makes sense because it mitigates the operational risks. So it's important to strike a balance between the 2 approaches so that we can keep our business healthy for a long time. So this is how we view our land bank, and we could also sell some land as well depending on the opportunities available in the market, we could sell, for example, some land to buy more land that could make more sense to the company.
Our next question is from Matheus Enfeldt, UBS.
Congratulations for the results. I think it's pretty early on, but if we could help us understand the decrease in inputs with the outlook for '23 and '24 with prices resuming the levels of 2021 and thinking of variable costs, is it going to go back to what we saw in 2021 and '22. And in this scenario, combining inputs with commodities still rallying. Can we think of margins at historical levels, thinking of '21, '22. I know that last year was exceptional. Now going back to what Pavinato said in the previous answer, with a focus in land leases and mitigating risks, as you said, with the acquisition in Bahia, after this pause in which you didn't grow this year? Do you think that you will -- think you will go back to the growth level we saw in recent years with 35,000 hectares for the next crop year? Do you think we can expect that?
Thank you very much, Matheus, well, inputs. Fertilizers, when we look at our fertilizer basket in Brazil also as a result of the war in the Ukraine, well, levels had increased 200% in '22 in the comparison with '21. Now international prices are at 52%, 50% also in comparison with the historical levels, excluding any outliers. We purchased inputs for '23, '24. We enjoyed the best points in the curve, for example, for phosphorus, when the curve was down, then we made the purchase and the market now has increased $80 per ton in relation to the purchase price. So we are looking out for opportunities in which we can fix the production cost for '23, '24 at the lower level.
So there will be some expressive adjustments in the '23, '24 crop year. Now in relation to cost formation, it's a combination of prices and quantities, so we still haven't mapped out yet how much our production costs will vary in '23, '24 because we have lower prices to speak of. And at the same time, an amount that we are still crunching numbers. We use a smaller amount of fertilizers and also aiming at maximizing our efficiency, and I think that this was a strategy that paid off because we envision '23 and '24 with high productivity even at high cost. And -- or we got this right in '21, '22 and '23, '24, there will be a revision downwards.
But in the case of SLC Agricola, we still we will know for sure how much our production costs will vary for the next crop year in summer time. So we are looking for the right opportunities to fix '23. '24. Also in terms of FX, we have fixed part of the FX for '23, '24. And this will ensure that we have positive perspectives, we want to maintain high profitability in 2023 and also in '24 in the scenario of price of cost reduction and prices at higher levels. When we look at the demand supply ratio, well, in cotton, there was a downward price adjustment. It's now being traded at a lower level, but we continue to invest in cotton because we're very efficient in cotton even at lower prices. But soybean and corn, when you look at the world demand supply ratio, there is no excess production.
So prices should remain at the current levels and climate events well, have been happening every year in different locations. This affects production and supply. So that's why prices are now being traded at higher levels. So there's still a lot to wait for in '23 and -- but we expect that we'll have also good margins in '23, '24. Now in relation to growth, okay. Growth -- well, we have reported that we want to continue growing our financial indicators give us the support for that. So last year, we had plans not to grow just to consolidate the results in '22, '23. And it's only natural that now we will put our efforts to continue growing. Now growth opportunities are never linear and never given, but we are doing our best so that we can continue growing in future years.
Our next question is from Lucas Ferreira, JPMorgan.
I have 2 questions about the current crop. What are the risks that you detect for the second crop you wrote that, well, you said that the climate should be okay, but what do you see in terms of risks? It seems like the world is migrating to an El Niño, wouldn't this dry up the climate, especially in Bahia. And also to understand the cotton acreage. We saw some land recovery, what -- and you have higher productivity expectations for this year. So could you explain to us why not plant more cotton? Is it because the planting window is tighter now? Why not plant more cotton for '22, '23?
Thank you very much for your questions. Well, risks. Second crop, what happened in '22, '23, soybean, well, we planted early in Mato Grosso. And then the cycle lengthened and the harvest was not early. It was a normal harvest in Mato Grosso. And with excess rain in the harvest period, this lengthened the period a little more. So then -- so led us to change 10,000 hectares from cotton to corn in Mato Grosso and in Maranhão. Then we planted cotton according to schedule. And in Mato Grosso, we plant cotton in January through the first week of February, and this is what we did. Obviously, the objective from the strategic point of view is to have all the planting take place in January.
And everything was prepared for that, but unfortunately, there was this event with rains during the harvest period. But then we changed 10,000 hectares to corn because we make a calculations of the contribution margin of the planting of that week. So in February 5, how much cotton I have to plant to reach my production and contribution margin. I make the comparison in fact, between corn and cotton. So that's why we decided to have 10,000 hectares from cotton to corn. And then harvest went very fast, and we were able to plant all of the corn in February in Mato Grosso. There was just a little piece left. And so we planted corn in a very good time -- ideal time, which is February.
Now in Mato Grosso lots of rain in February, which was bad for the harvesting, and we still haven't finished planting corn because Mato Grosso and Maranhão, those are the 2 states where we had some delays in harvesting soybean and also in planting corn. Now in relation to climate risk, if the climate is okay, we'll reach our productivity in corn and double crop corn cotton. Now if the weather is dry in April, probably second crop corn will suffer. And with this draft in early April, based on climate models, we see consistent rain probably in Maranhão. So the risk is higher. It's lower in Maranhão because we have climate risk in April and May and further there should be less rainfall.
This is the current model, but unfortunately, the models didn't get much right recently. So there was no forecast for drafts last year in the south end we had it. So there is, of course, a little higher risk in corn because it was planted a little later. For cotton, as I said, the decision to plant less or more, we make this comparison per farm per agricultural unit, what crop will create more production and also contribution margin, which is the line before payment of overhead. So our planting area decided -- so that's why we have now 10,000 more hectares in corn because of the delay in planting.
Also connected to prices and cotton was harder hit last year from $1.20 per pound that it was, $1.125 went to $1.18. So the cotton was the crop with price decline. Corn is now competitive in the double crop in Mato Grosso depending on how much we will plant and our yield. So our objective also is always to maximize results per hectare planted, and that's why we chose this breakdown. And also, we do not -- well, we see the energy crisis in Europe. And this has increased the demand for fiber today. Cotton is at prices -- almost historical levels. It's not being traded at higher prices as corn and soybean, but it's still profitable for us, but this is the rationale in other words.
I ask you because there is a forecast of growth in acreage of 4%, 5% in Mato Grosso. I don't know if this is your own decision? Or if do you think that this number is too high?
Yes, there was a recovery in acreage. Last year, we had lost some acreage and the effective acreage will be a little lower than forecast because several other growers did what we did. They reduced the cotton area in the last minute. So it's going to be a little under 1.7 million hectares, which was the initial forecast.
Continuing our next question is Julia [indiscernible] of Morgan Stanley.
I have 3 questions. I know that you were talking about the cost for '23, '24 crop year. But since you have purchased from 40% to 60% of your fertilizers in this package, while compared to the same 60% of last year, how much below it is in relation to the purchases of last year? I understand that you have higher volumes, but I would like to know in terms of cost levels, how can -- how the 2 crop years compare? Another question. I can ask the 3 questions at once or one at a time. What do you prefer? Okay. So -- okay, one at a time then. So, Julia?
Depends on the product because we have phosphorus that we purchased cheap last year our cost '22, '23 when we consider what we paid and what the market paid, they were -- we were really below market cost. So that's why our cost variation year-on-year will differ from the market cost variation because in '22, '23, we were really not as high as the rest of the market. Our average cost increased 20% in BRL in the comparison '22, '23, '21, '22. And the rest of the market saw increases of more than 30% in the same period comparison. Fertilizers, potassium, we had bought it for '22, '23 before the prices rallied.
And now it's a little above what we paid for in the past. And now phosphorus, the reduction -- well, there was a reduction of 30%, 40% in relation to the previous crop year. So when you consider the package, the reduction will be very significant. But we still need to purchase half of our needs. So it will depend on the balance left to buy and the dynamics of the market. So this is what we predict for '23, '24 now. Chemicals will see a downward adjustment, especially commodity products such as glyphosate.
Glyphosate now being traded at half the price last year in the international markets, $13, $14 per kilo in glyphosate. So it's now half price. So we'll see some -- an important adjustments of chemicals. We have negotiated only part of our glyphosate so far. So it's important to wait a little longer to know exactly what the cost adjustment will be. But it's very likely that you find nominal costs in BRL per hectare that were lower in 2023.
What's the order of magnitude?
I think it's very difficult. The average cost will have nominal prices below the current cost because of inflation. Inflation was high and some products saw no downward adjustments such as seeds and think of fertilizers that went down together with chemicals, those are the 2 group of inputs that were -- so that we'll have a reduction of costs in BRL. This is the scenario we see.
Also in relation to costs, what is your perspective for logistics costs in the crop year? There's a little bit of anxiety because there is a lot of expectations for both corn, soybean and also sugar in relation to this crop. So could you tell us a little bit about the logistics in relation to the previous crop year?
Well, I think that there will be much more demand in terms of logistics because we have record-breaking crops for the 3 products. So costs will increase in logistics. So far, it hasn't really increased that much we're still shipping soybean, but soon, we'll start shipping other products as well. So starting in the second half, we'll see a lot of demand for soybean corn and sugar and cotton as well. So it's only natural to expect that logistics costs in 2023 will surpass the costs of 2022.
I think my last question, something that caught my eye was the price you paid for this last acquisition land acquisitions this last summer. It seems very attractive. But I would like to understand -- because this is -- I imagine that it's a good farm, and how was it sold at such an attractive price because you already operate it. Do you think that the expected drop in soybean bags was factored in because what I'm trying to glean from this information is how does this impact the assessment of the land bank of SLC in the next round of audits?
Well, historically, in Brazil, land prices never go down, either they remain flat or they go up. There are some cycles in which they are flat and others in which they go up significantly. So our expectation in terms of appraisal and appraisal is that the numbers will be higher than last year. We don't expect any decreases because when Deloitte performs the appraisals, they don't take into account the peaks. They look at the history of transactions so that they can appraise the fair value of the assets.
So we don't expect land prices to go down now that Agriculture is doing so well with -- so it's only natural that prices will increase. So as I said before, this was a deal, the buyer and the seller came into agreement. There was interest on both sides and the asset was attractive to us because of the structure of this farm. It's a farm with 4 parts, we bought 1 part and control over the operation. And this was very convenient for us in combination with the attractive land price. So this deal will add a lot of value to our operations.
Continuing now, our next question is from Daniel Sasson, Itaú BBA.
Congratulations on the results. A quick question, in fact, about seeds. You were talking about your sales strategy, so the volume for the resellers and for the farmers and the consumers should increase because your own consumption is taken care of. So is it reasonable to expect that your margins because of this sales mix should increase in relation to the 25% EBITDA margin in this business, or do you think that this level is sustainable thinking of the future, what do you think?
The seed business, well, it's the same story, as always, it adds a lot of value. So this level of profitability that we had was very good. So we know that we'll have better years, worse years, but even by increasing our direct sales, we don't believe that we'll have better margins in the near future. because the business structure is like this. It's a business that doesn't require much invested capital you see price being added because of the ROI that you add to the grain you produce. So there is revenue that is high for kilo produce, you can multiply it by 4.
So when you think of margins, well, indeed, the revenue is much higher than that. So this is the logic and also commerce is something that does not have the same high margins as production. So it's only acceptable that we'll have lower margins in this business than in production. And it makes all sense. In fact, so we'll have margins. We don't believe that it will be the same level of margins as in our ag production. No, it doesn't make sense. No, in the seed business, it will be different margins.
It's something that we add to our ag production, grain margin, well, the seeds have a bonus of 8% over the grain because this is a managerial account for us. We don't have a separate company for seeds. It's all part of SLC Agricola. So this is our managerial account showing the added value add at seed prices. Just to complement, Daniel, well, we are dealing with external clients. So of course, there will be an increase in external clients, but the margins should be similar as if we were selling seeds to SLC Agricola.
Our next question is from Guilherme Palhares, Bank of America.
Just a few clarifications. Well, we were talking about fertilizers and you talked about chemicals, pesticides and herbicides. So looking at '22, '23 glyphosate, and how relevant is this as chemicals and besides those 2 main products, what do you expect in terms of prices. We see some tracking showing improvement others with marginal cost increases? And the second question is, in effect, something that I would like to clarify, the [ PLR ], I thought it was 9% of the profit, the profit sharing program. But when we look at profit and [ PLR ], they were a little bit mismatched. So why did this happen? And do you have any provisions to make because of the fantastic results of '22 and thinking of '23.
Well, chemicals, we have a survey that we make as a generic chemicals package based on free market dynamics. This package is at around 32% cheaper than it was last year. Glyphosate, as I said, is 50% down, but the whole package of generic chemicals is now 1/3 lower than last year. Obviously, the patented products, then it depends of the different companies, how they're going to adjust prices. And these products did not really increase their prices so much last year. So it's natural that this year, they will not decrease their prices so much. So in the package, the reduction will be expressive in prices for chemicals in '23, '24 in the comparison with '22, '23. This is what we predict for chemicals.
Pavinato, just 1 point. When you talk about fertilizers, there is an additional volume that you need to buy for last year. So is this true also in chemicals or herbicides at this time?
No. In the case of chemicals, this is not really the case. We have been buying less because of digital, agriculture and accurate application we'll have some leftover products in event because we're losing we're using less chemicals. We -- thanks to our investment in digital agriculture. So we'll be buying less in quantity. But this is, of course, something that we are getting, thanks to localized application, but our -- we didn't stop using chemicals. It was normal in '22, '23, and we'll have the same package, the normal package with the necessary adjustments for the next crop year. And then the price reduction will be reflected fully in our costs. About the second question, Palhares, about 9%.
Yes, it's 9% of the profit that we distribute, but then there's another division. The percentages stayed based on results and also based on the targets of the different agriculture production units. Last year, we had some issues with corn and cotton yield. So not all targets were met in terms of units, unit cost, productivity as a result of this. The sum was reduced. We are willing to distribute 9%, but it's 40% depending on targets. And since the targets were not met, then the bonus is not the same. So the company results could be much better because we saw a reduction of 20% in cotton and corn and this, of course, had an impact on the bonuses for all employees. We're disbursing 7% to 8%, depending on the year. And this is something that we account for in our cost base.
Now just to ask whether we needed more provisioning, a need for more provisioning?
No more provisioning.
We have an additional question from Regis Cardoso, Credit Suisse.
Just 2 quick ones. I would like to understand the rationale for share bonuses, and also, I would like to understand when you pay the bonus in shares, in fact, you're not distributing any cash. So what is the future allocation of this cash? Because your -- you have low debt in the company. But if you are just finding up cash to drive organic growth or via M&A.
Is that what you're thinking? Or will you distribute dividends via cash in the future? Another topic of interest, if I may, thinking of future investments, something that caught my eye was this land acquisition in Bahia, which is a little bit different from the strategy I had in my mind for SLC, but I think that you discussed this in previous questions. So my additional -- my follow-up is thinking of future investments. Do you prefer a certain geography or culture? Are you going to grow more corn or cotton or in specific geographies such as the Northeast. Do you have any target regions for your investments?
Okay. I will answer about the bonus. Regis, thank you for your question, in fact. Well, according to our bylaws, we have reservation limits, and we were reaching those reservation limits so that we could continue to have expansion reserves because it's important to have cash for expansion, even if we are asset light, we need to buy machineries, sometimes we need to build headquarters or when we convert pastures, it's important to have reserves.
So the bonus in shares aims at resolving this issue since we have something that's been incorporated to our capital, we can give this advantage for investors because for them, the cost is BRL 23, and this is something that they will gain when they capitalize on the sale of the share price on BRL 50 and then BRL 10, they're going to get BRL 45 million minus BRL 23 million. So they will pay capital gain tax only on the difference. This is the advantage for them. If we didn't do this, if we split the shares, they wouldn't get disadvantage. This is a tax advantage, in fact. This is the major advantage that comes from those bonuses. Second question Regis about geographies and crops.
Today, we are present in 7 states of the Brazilian Cerrado. Our vision is that we can grow in all of those states without any preferred state, Bahia or Mato Grosso, but it really depends on the opportunity. We believe that our geographical diversity is very well balanced right now. We have seen some water deficit stresses. We also saw excess rain, and we know how important it is to be diverse geographically in terms of quality and profitability. So it's important to grow. Mato Grosso, Goiás, Bahia, Maranhão, we don't think that there is a new agricultural frontier in Brazil, such as [Indiscernible]. They have some potential, but also some limitations.
So we will continue to grow our land in the areas where we are already present. In relation to crops, it's -- Brazil will grow more corn and soybean acreage rather than cotton because it's only natural considering market demand levels. So we have been working for a very long time with 1/4 of our acreage in cotton will continue to maintain the share of cotton, but it's not always that it's going to be the best crop and maybe we can grow more in soybean and corn. So this is a double bet 2 crops in the same land that generate a lot of profitability. So I believe that we'll continue to be growing in the 3 crop split with preference for soybean and corn based only on market demand.
Well, so what I understood from your answer is that you're building a buffer to eventually fund a more accelerated expansion, but there is no immediate intention to accelerate dividend distribution via cash.
Yes, we have just distributed BRL 602 million, which is very significant. This is in line with what we have been doing in recent years. Our leverage is low, but we want to grow and to grow and not going into that, we need to have some cash to fund this growth. Last year, we prepaid an RCA that was restraining our growth. It was a relationship between liability and equity. So every time we updated the information, so this was the old CRA that we prepaid so that we can continue growing in 2023.
If there are no further questions, our earnings conference call on the fourth quarter 2022 is now closed. Our Investor Relations department will be happy to take any of your questions. Have a great day, everyone.